With no more local playoff games, we turned our focus to the beginning of Q3 earnings season this week. Monday was quiet with bond markets closed. The big financial stocks then took their positions in the earnings leadoff spot Tuesday. Unlike the Yanks, they made contact but didn’t exactly hit lines drives all over the place. Citigroup, JP Morgan, Wells Fargo, and Bank of America all reported that overall economic dynamics are solid, consumer spending remains healthy and credit performance is stable, if not strong. More idiosyncratic to them, equity trading was much more robust than FICC across the group. However, of the roughly 20 large banks and financial companies that reported this week, about half fell after their results.

While Financials kicked off the earnings cycle, tech wobbled to start the week, especially the semiconductor and memory stocks. The kindling ignited on Wednesday, triggered by a hot core CPI print. The long-end of the Trearsury curve ripped 15-20bp and expectations for rate hikes shot up, immediately putting equities under pressure.

The S&P fell 2% and broke below the 50d ma. A month ago we saw a similar move, and the index fell further to test the 100d ma. That level held and the S&P went on to make another record high. Small caps lagged, with the Russell 2000 down 3%. Despite the headline weakness, the S&P equal-weight is in the green for the week, much like last week, as solid breadth continued to overcome mega cap (NYSE 100 down 6%) and tech weakness. 7 of 11 sectors ended the week higher as investors rotated into defensive and non-tech sectors.

Next week earnings will continue to pour in. Given all the AI angst, Meta will be a very important update, along with IBM, SAP, Tesla and Blackstone, among many others. The data calendar will be light, headlined by flash PMIs and China data. Most importantly, the NBA champion NY Knicks will begin their title defense and raise their championship banner on Tuesday night. Enjoy your weekend.